I encourage national Democratic Party leaders to quickly acknowledge that the American people have chosen to support candidate Trump’s policy proposals. They need to find areas of agreement and work quickly with the new president and his party to support and implement policies where agreements can be found. Democrats ought to fight against other proposals that they cannot support.
Support proposals that help the working class and middle class.
Eliminate taxes on tips income.
Eliminate taxes on social security income.
Increase the child tax credit from $2,000 to $5,000.
Eliminate taxes on overtime pay premiums.
Cap credit card interest rates at 10% – 15%.
Fix an earlier attack on states’ rights.
6. Eliminate the $10,000 federal tax limit of state and local income tax (SALT) deduction.
Take reasonable steps to pursue American foreign policy goals.
7. Negotiate a settlement to Russia’s invasion of Ukraine.
8. Negotiate a settlement to Israel’s response to being attacked. Leverage world opinion to impose a settlement that creates a Palestinian state that is better for everyone.
9. Negotiate a trade deal with China that promotes “fair trade”, environmental equity, labor equity, and protects American intellectual property.
10. Pressure NATO allies to commit to 3% of GDP commitment to national defense spending by 2030.
Protect American borders.
11. Pass the compromise border security bill negotiated in 2024.
Control government spending.
12. Appoint a “blue ribbon commission” to identify systematic ways to reduce federal government spending. Include Democratic members.
13. Support a “balanced budget” constitutional amendment. Find language that forces Congress to reduce spending or increase taxes when material % of GDP budget deficits exist in a “full employment” economy. For example, “When Federal Budget deficit exceeds 2% of GDP and unemployment is less than 5%, Congress shall reduce the deficit by at least 33% in the next year”.
Address the Social Security funding situation.
14. Appoint a “blue ribbon commission” to recommend a combination of tax increases, benefits limits, inflation measures and age qualifying rates that ensures promised social security benefits will be paid for the next 50 years.
Address Health Care Costs
15. Appoint a “blue ribbon commission” to recommend methods to systematically reduce total health care costs as a percentage of GDP by 5% by 2035.
Summary
Democrats and Republicans need to look out for the interests of all Americans. There are big issues where compromise solutions must be found. Democrats should step forward and provide a list of areas where they are willing to work with the new president to serve the American people.
America is often described as an “individualistic” society. Sometimes as a compliment. More often as a criticism.
The positive reviewers note that it incorporated John Locke’s individualistic principles to form the first “classic liberal” democracy which has endured for more than two centuries of geographical expansion, rapid population growth, technological and social changes and foreign challenges. They argue that it demonstrates that a federal system of checks and balances, limited government and preservation of individual liberties can be economically and socially successful. Such a government can be effective even with diverse racial, ethnic, class, political and religious interests.
Only the Individual
The critics say that the society has always balanced individual and community interests, that the government system relies upon a strong culture of shared values and that “rugged individualism” is a myth that has been used to provide political support for laissez faire capitalism.
The heroic, self-sufficient individual has been promoted throughout American history. Washington and the founding fathers were memorialized. Jefferson’s ideal of the independent citizen farmer still resonates. Jackson further elevated the importance of the common man as central to American success. The explorer, pioneer, frontiersman, Lewis & Clark, Daniel Boone, and the self-made man were celebrated. The citizens and leaders who spread the new American individual rights across the continent were hailed for bringing about a new society, an example for the world to follow.
Americans embraced Thoreau’s retreat, Emerson’s “self-reliance”, Franklin’s “common sense”, Horatio Alger, cowboys, private detectives, military, political and superheroes. Proponents of laissez faire capitalism contrasted natural property and individual rights against unnatural government interference during the Gilded Age. Carnegie, Ford and Hoover promoted the same ends at the turn of the century highlighting the progress driven by individual inventors and owners. Hayek, Rand, Goldwater and Reagan argued that FDR style government was illegitimate and threatened the liberty and security of the nation, while praising job creation, technical innovation and entrepreneurs.
The Reagan revolution re-established the intellectual and popular legitimacy of holding conservative social and economic philosophies. Some successors pressed the arguments further, equating taxation with theft, comparing job creators and job killers, questioning the motives and results of government departments and employees, and promising no new taxes under any situation. “The self-sufficient individual is great, government is bad”, they said.
Community Plays a Supporting Role; Not a Leading Role
The role of community tends to get lost in the shadow of the great liberal versus conservative battle over the role of the state in “regulating” the economy and society. Most historians, political scientists and commentators agree that the American political system was constructed upon the assumption that citizens would share a common Christian culture with objective virtues complementing the God-given rights and responsibilities of citizens. The authors of the Federalist Papers, the Constitution and the Bill of Rights understood that this social glue was needed to support a democratic system of checks and balances, especially as the young nation expanded its small population across the Appalachian Mountains. They promoted “freedom of religion” but also relied upon enduring religious belief and participation. The founders held classic conservative ideas about the necessity of individuals to possess a sense of civic duty to participate in government, willingness to sacrifice for the common good and a commitment to the institutions of collective self-government.
Community is eclipsed by individualism in the public’s mind for many reasons. The promotion of liberty-loving and economically productive individuals who require only minimal government. The ease of highlighting outstanding individuals and individual types in the arts, journalism, history and marketing. The complexity, abstractness, variety and organic nature of community functions. The overlap of community and government when contrasted with “rugged” individualism. The soft, feeling, unmeasurable nature of community. The supporting rather than leading nature of community. The limited visibility of many community functions.
Community relations and results are exhibited throughout society. First, in the relations between citizens and their government. In the many voluntary associations that diverse citizens create and join in a nation with limited government and services. In local residential communities. In business, trade and agriculture. In the arts, travel and entertainment. In government organizations. In the country as a whole.
Community Is Essential for Democratic Government
The American government plan is based upon a relationship between the citizens and government. The citizens/individuals exist first and create the government. At the same time, they commit to fulfilling their duties as informed voters, candidates, soldiers, jurors, parents and supporters of the government and its institutional parts. Although the architects of the government warned against it, people soon clustered into political parties, movements and special interest groups to represent their interests. These parties have supported individual human, social and economic rights and the collective interests of classes, geographic areas, professions, industries, religions, ethnicities, sexes and races. Self-government requires a balance between the community and the individual.
The framers of the US Constitution were looking to the future. The US population was less than 3M in 1776, reaching 5M in 1800 and almost 10M in 1820. In today’s terms that’s the same as the states of Mississippi, South Carolina and Michigan or the metro areas of Charlotte, Phoenix and Chicago. This was a collection of 13 small states making sure that the central government would not become a tyrant. In 1780 the UK had 10M people, Spain 14M, Italy 16M, Germany 23M and France 28M. The US was about the same size as Sweden, Netherlands, Switzerland, Portugal and Belgium.
Community Through Voluntary Associations
The large role of voluntary associations in filling the services gap between citizens and limited government was a distinct feature of the early USA, described by Tocqueville in his famous 1835 “Democracy in America”. He noted that class was absent, no religion denomination was dominant, people were preoccupied with economic affairs and the government’s role was small. Religion actively shaped lives. Citizens created voluntary organizations to fill every need: universities, fraternities, sororities, professional associations, libraries, fire companies, hospitals, seminaries, prisons, missionaries and schools. In a sparsely populated new world composed of immigrants or their descendants the “rugged” individualism required for survival was paired with a deep commitment to community based upon necessity, civil and religious beliefs.
America experienced an explosion of new associations between 1880-1920 in response to the challenges of urbanization, immigration and industrialization. YMCA, civic organizations, social organizations, scouts, Chautauqua institute, women’s movement, professional organizations, conservation organizations, mutual aid associations, settlement houses, service clubs, prohibition clubs, cooperatives, social gospel services, community funds, credit unions and unions.
Community Through Religion
America was a very religious place from the start. The Puritans, Quakers and other Christian denominations practiced their faith in congregations, even if sin and being saved were deemed individual matters. Religious groups impacted civil society. The Great Awakenings were communal events leading to the modern era crusades of Billy Sunday and Billy Graham. Colleges and universities were mainly founded by religious denominations with religious influence extending into the late 20th century. US religious membership and participation declined 50 years after such changes in Europe.
Residential Community
The New England township model of direct democracy and the Northwest Territory same-day horse ride county government model that followed encouraged participation in local government. This engagement together with funding and delivering government services created a deep sense of local community even as the model spread across the Great Plains to the Rocky Mountains. We still see the county seat, county square, county courthouse model. This local community model continued in urban neighborhoods, suburbs and housing developments with HOA boards and services. Urban machine politics were based on the local precincts. Urban immigrants clustered in ethnic neighborhoods with familiar faces, languages, customs and churches. Conservative philosopher Edmund Burke praised the “little platoons” of family, kinship and neighborhood as the basis for teaching social skills and holding the larger community together. The individual was complemented by a meaningful local social and political community for most Americans through time.
Community at Work
America began as a farming nation with a few urban traders. Jefferson emphasized the importance of maintaining a high proportion of land-owning farmers who would be incentivized to take care of their families and participate in managing the shared resources of the community. Land was inexpensive, so agriculture was able to expand for more than a century.
Even agriculture was never solely about the individual. Family farms, shared harvest time, barn raising, going into town. Land grant universities developed agricultural science and local extension agents shared their knowledge. Grange organizations. Coops. Farmer-labor populist political parties. Farm banks. Political influence and programs. Rural electric coops.
Business and manufacturing were small scale originally. With access to natural resources and transportation, American manufacturing grew rapidly starting in the 1840’s. Many inventors and capitalists. Much wealth was created in the 19th century.
Manufacturing grew and organizations developed more effective administration. The railroads, steel, coal and limestone required social organization on a larger scale. The automobile and electricity spawned even greater innovations including vertical integration and the assembly line. Unions formed to balance the owners’ power. Industrial and trades unions viewed themselves as brotherhoods. Large economic organizations became the daytime home for most workers. Professional and industry associations grew to serve the needs of their members. New community ties were formed.
Further corporate growth through 1930 and then another boom after WWII. “The business of America is business”. “What’s good for GM is good for America”. Although it is rarely recognized today, the development of effective businesses that employed thousands and even a million people was and remains an historic social achievement, overcoming the different interests of those individuals. Corporations also developed social innovations such as R&D teams, joint ventures, outsourcing, project management, functional departments, divisions, cross-functional and lean teams to balance individual and collective interests.
Community in Leisure
Americans were always sensitive about being less cultured than their European peers. They invested in seminaries, universities, libraries, printing presses and theatres. They applauded American writers and artists. Itinerant preachers shared news and thoughts. Public lectures, pamphlets and news editorials were consumed. Theatre and orchestras expanded in the cities. Leisure time brought sports. Magazines boomed and circulated. Circuses and lecturers visited. Universities offered public lectures. Radio and movies greatly increased the consumption of high and popular culture. Orchestras and big bands entertained. Movie stars and lead singers gained fame. American jazz, swing, blues and rock and roll grew. Large attendance concerts began. Community was built and reinforced.
Community in Government
US government organizations were quite small historically. Mostly import tax collectors and judges. The government’s role grew with Hamilton’s national bank. The government began to invest in infrastructure like roads, ports, canals and railroads. The military grew and established forts to protect the settlers. It developed its own strong collective culture. Land grant universities and the continental railroad started in Lincoln’s time. The post office and pony express grew. Rivers were managed to provide reliable transportation, electricity and recreation. Interstate highways and airports were built. The government grew dramatically under FDR as a service provider, regulator, research sponsor, investor and owner. Although the 3 million Federal government employees get the most attention today due to the impact of their work, state and local governments employ 19 million, more than 6 times as many. Government employees are more likely to be unionized, serve long careers and view their work as serving the community.
American Community
The idea of a distinct and important American culture dates to the country’s founding as a breakaway republic seeking to preserve “the rights of Englishmen”. The country’s government, economy, immigrant citizens, diversity and shared war efforts shaped its self-image. Many saw the United States as a special country created to be a positive example for the world. “American exceptionalism” was described by both its citizens and Europeans. The individual based political system, the role of churches in shaping daily life and the large number of voluntary associations all played a role in describing the character of everyday life, hopes and dreams. Given its location between 2 oceans, the US mostly followed an isolationist path until WWII. Since then, it has seen itself as a global defender of democracy against communist and totalitarian states. The US has maintained elements of its individual, religious and associational character to this day.
The Role of Community Changes Through Time
Robert Putnam’s series on “Bowling Alone”, “Our Kids” and “The Upswing” documented how American social institutions have evolved through time to address new needs and how participation and engagement have risen and declined across long periods of time. During the Great Depression soup kitchens, potluck suppers, community gardens, small scale retail and personal donations complemented government programs. During WW II victory gardens, scrap collecting, bond sales, rationing, black outs, civil defense clubs and female factory workers contributed to the war effort. The post-war era saw a boom in sports, civic, neighborhood, professional and religious participation followed by a reversal at the end of the century. During the 2020-23 pandemic the country experienced lockdowns that highlighted our economic and social interdependence and the negative consequences of isolation.
Community is an essential and integral part of modern life. It operates in many dimensions. We need to recognize its critical role in complementing the individualistic view of the world.
The US economy continues its evolution from agriculture to manufacturing to services to information. President Trump was responsible for the US economy from February, 2017 through January, 2020. President Biden assumed responsibility in February, 2020. In order to compare the two presidents, let’s look at Trump for the 3 years of sustained growth deep in the business cycle before the pandemic. For Biden, let’s look at a comparable 3-year period from June 2021 through June 2024, after the post-Covid rebound. Trump benefitted from an 8-year long business cycle expansion. Biden had to deal with a once in a century pandemic driven economic depression.
Inflation: Advantage Trump
The independent Federal Reserve Board responded to the pandemic by greatly increasing the money supply to ensure that profitable, well-run financial institutions would be able to survive the temporary disruptions in the real economy. The Fed increased the money supply by 4-5 times its prior level to ensure the economy did not collapse! The extra money supply had to end up somewhere. It drove up consumer prices and increased asset values in the stock market and for home prices.
Inflation grew by 2% per year with Trump. It grew by 5% per year, on average, with Biden. Overall prices are 9% higher with Biden. Trump’s economic policies extended the Obama recovery for 3 years without triggering an increase in inflation, despite a low unemployment labor market.
The largest cause of higher than usual inflation in Biden’s term was the 20% spike in US and global demand for durable goods. Factories shut down during the pandemic. Demand rebounded within 6 months as consumers chose to spend money on goods rather than in-person services. Consumer demand at the end of the Biden period is 50% higher than at the start of Trump’s term in office.
Corporations were able to capture and maintain a 50% profit increases due to market disruptions of the pandemic. Experts mostly reject Biden’s claims that corporate profits were the main driver of inflation, but they clearly aggravated the impact of the supply chain disruptions.
Obama was able to reduce federal budget deficits by two-thirds by the end of his presidency. Deficits doubled on Trump’s watch before the pandemic arrived. Biden cut deficits from their record highs during the pandemic, but they have been 50% higher than the pre-pandemic Trump era. Most economists consider the budget deficits to be the main cause of the continued higher than typical rates of inflation, accounting for 3%, 2% and 1% extra inflation in the 3-year Biden time we’re considering.
High profile gas prices remined flat during Trump’s period. Global supply and demand caused prices to increase from $2.50 per gallon to $3.50/gallon where they have remained for the last 3 years.
Trump enjoyed historically low 4% mortgage interest rates, a thin 2% above the inflation rate. The expansion of the money supply drive rates down to 3% during 2020 and 2021. They rose to 7% as inflation rose sharply and has stayed there. Inflation has fallen but markets typically require years of data to reset expectations of long-term inflation which drive mortgage rates. The Federal Reserve Bank has hesitated to cut its benchmark interest rates until inflation is clearly approaching its 2% target.
Labor Market: Advantage Biden
Trump reduced unemployment by 1%. Biden reduced it by 2%. Both presided over best in 50 years overall labor markets.
Layoffs have remained at historic lows, with Biden enjoying slightly lower rates.
Job openings in the Biden market have been 50% higher than the Trump market, reflecting a strong economy with growing labor demand, despite the impact of the pandemic.
The Biden economy recovered all 20 million jobs lost in the pandemic within 2 years, much faster than expected. Total employment has continued to grow at the trend rate to a record 159 million.
Core labor force participation is 1% higher with Biden than Trump. The current participation rate was last achieved in 2001.
Median real wages have been slightly higher during Biden’s tenure.
Asset Values: Advantage Biden
Despite the pandemic disruptions and losses, US firms are worth 70% more today than before the pandemic. This reflects the 50% profits increase and continued positive future prospects.
Home prices have nearly doubled since before the pandemic, reflecting the post Great Recession decline in home building, construction issues during the pandemic and general asset inflation caused by the rapid expansion of the money supply.
The US enjoyed a solid 7% savings rate before the pandemic, an extraordinary high 10% after the pandemic, falling to just 4% for the last 3 years.
Human assets increased during Trump’s presidency and resumed growth after the pandemic. As college graduation rates have increased throughout the post WWII years, the cumulative number of college educated individuals continues to rise each year. The growth in masters and professional degrees is noteworthy.
The Economy – Advantage Biden
Population growth has resumed after the pandemic.
The healthy US economy is able to support 3 million more retirees after the pandemic.
Real dollar GDP is 2 trillion dollars larger than before the pandemic disruption. That increase is the same size as the total GDP of Russia, Canada or Mexico. We added the Canada economy during Trump’s time and the Mexican economy during Biden’s time.
Real personal income grew a little bit faster during Trump’s time and more smoothly. Personal incomes jumped up during the pandemic but have been flat since that time with corporations capturing a greater share of the economy’s returns.
Workers have been 8-10% more productive in the Biden economy.
Farm income has doubled in the Biden economy.
Manufacturing employment grew by a surprising 3% in Trump’s term. It is slightly higher in the Biden era.
Real dollar exports increased during the Trump presidency and then again during Biden’s time despite a greatly stronger US dollar which hampers exports.
The world is willing to pay 10% more to hold US dollars in the Biden period, reflecting strong economic realities and prospects despite the risks of higher US inflation and budget deficits.
Summary
The US economy is very strong. Trump was able to extend the Obama recovery for longer than most expected, keeping inflation, interest rates and unemployment at low levels. Biden managed the recovery from the pandemic induced recession better than expected. The economy, asset prices and labor market have recovered very nicely. Inflation has remained the weak part of the Biden economy. It is lower than in comparable global economies and trending towards the 2% target in 2025. Critics point to excess government spending as an avoidable source of high inflation.
The Trump economy built upon the success of his predecessor. The Biden economy overcame the disruption of the pandemic to produce equal or greater results. Both presidents delivered solid results.
In an increasingly partisan world, I look for people, processes, incentives and institutions that can build trust, respect, constructive conversation and an emphasis on our shared interests. For most of the twentieth century, the League of Women voters served this role. In the last 20 years, the league has adopted positions that take sides in “the culture wars” so has lost its treasured status as a neutral collector and sharer of political candidates’ views. This is a true loss for our society.
Inflation is dropping nicely but won’t reach 2% this year. Technical issues in calculation of housing costs which drives inflation a year later than reality. Government spending / budget deficit in a full-employment economy pushes inflation. Physical goods prices are declining. Services prices are stickier, with a smaller wage-price spiral effect. Global economy is weaker than the US, which is helping. Independent Federal Reserve is holding interest rates high longer than required, making up for its prior slow increase in interest rates.
Fiscal and monetary policy matter. Other industry level policies can greatly reduce inflation. The president and congress have not responded to my early 2022 advice!
November, 2022. Inflation fears are high. The data is positive, but mixed and not enduring enough to be confident that inflation is falling, not accelerating.
Corporations took advantage of supply chain disruptions and shortages to increase prices quite dramatically. Prices had been smooth for a decade. Firms increased them quickly. Prices have NOT continued to increase. They have dropped a bit, especially for goods.
I participate in our political, economic, social, and spiritual communities.
I respect the innate human dignity and rights of my neighbors.
I accept that we each think, feel, and act differently.
I work to improve my participation, compliance and civility skills and encourage others.
Candidate Pledge
In Carmel, we seek to promote an environment of civility defined as the disposition to respect every human being we interact with as our moral equal and worthy of respect. Therefore, we encourage any candidate seeking public office and asking the citizens of Carmel for their vote, to agree to the following tenets of civility.
The Carmel Civility Project: Candidates Pledge
As a candidate for public office in Carmel, I hereby commit to the following five essential tenets of campaign conduct:
1. Civility and Respect: I will maintain a respectful demeanor towards everyone, regardless of our differences, and foster an environment of open-minded dialogue.
2. Integrity and Truthfulness: I promise to uphold truth and transparency in my campaign rhetoric and actions, swiftly correcting any mistakes should they arise.
3. Positive Focus: My campaign will highlight my vision and policies, eschewing negative attacks on my opponents’ character or record.
4. Informed Discourse: I pledge to inform citizens accurately about my platform and engage in constructive discussions to promote understanding and educated voting.
5. Democratic Process and Accountability: I vow to respect the democratic process, accept its outcomes, and encourage my supporters to engage in campaigns with integrity and decency in support of these principles.
By taking this pledge, I affirm a dedication to dignified campaigning not just out of respect for each resident of Carmel, but also in admiration for the institutions we cherish in our community.
I encourage us to always “look at the big picture”: across time, nations, industries, occupations, institutions and political views when considering the “state of the economy”.
Recent surveys indicate that many (partisan) Americans believe that the economy is in recession, the stock market is down, and unemployment is up (false). The US economy continues to lead the world out of the pandemic driven recession. I’ve documented the tremendous strength of the US economy in GDP growth, job creation, wage growth, profit growth and wealth creation. Today I’d like to focus on entrepreneurship and new firm creation, where the US once again leads the world.
The US economy led the world in creativity, technology, job growth and firm creation in the 1990’s as it recovered from the global economic challenges of the late post-war era. The deregulation and technology driven changes produced benefits into the “oughts”, the first decade of the new century. Unfortunately, the dynamic pace of new firm creation based on economic, trade, relocation and technological changes did not strongly continue in the first 20 years of 21st century. New firm creation lagged. Larger firms held onto jobs as they consolidated industries and protected their positions. Venture capital firms facilitated the most successful new companies to quickly expand market share and vanquish weaker competitors. Many Schumpeter disciples worried that the engines of “creative destruction” had lost their momentum and effectiveness.
The Great Recession of 2007-10 destroyed wealth, slowed economic growth, job creation and new firm starts. The Obama-Trump expansion was longer than expected by historical standards, but slower growing. Many critics and commentators concluded that the US had “lost its entrepreneurial spirit”.
New firm creation since the pandemic has basically been 50% higher than before the pandemic.
This is an AMAZING and unexpected result for the US. During the pandemic, economic activity ground to a halt. Supply chains stopped functioning. People stayed home. 20 million jobs were lost. 1 million lives were lost in the US. Many firms closed. Global trade and military tensions increased. Trust in governments, corporations and other institutions was damaged. In 2020, there was no reason to believe that the pandemic would be medically controlled soon, or that economic growth would quickly rebound and resume its trend growth rate. But it did!
The IRS tracks new firm tax license applications. Most firms never really do business, but the ratio of initial applications to real firm creations has been stable through history. The Census Bureau has determined which subset of IRS license applications leads to real new firm creations. Both measures show the tremendous 50% increase between the pre-pandemic and post-pandemic eras.
As Wendy’s Clara spokeswoman exclaimed long ago, “show me the beef”. Did the increased rate of tax applications during 2021-22-23-24 result in new firm creation?
The initial surge in new businesses did NOT include the IT or manufacturing sectors which look ready to benefit from AI and government investment policies. Firm creation should continue at its record pace for the next 2-3 years.
Why/how did this happen? US economy did not see wealth destruction during the pandemic as occurred in the Great Recession. Bipartisan government funding during the pandemic protected small businesses and individuals. The US labor market was strong before the pandemic and recovered very quickly to full employment with high quit rates, high job openings, low layoffs, wage growth, high labor force participation, and new immigrants included. There was no “credit crunch” destroying businesses. Venture capital firms were flush with capital, able to invest in the very best prospects. The US economy was mature as an “information age” economy, identifying opportunities. The virtual economy was mature, allowing individuals with minimal technical skills to easily create new businesses, market their services, and engage skilled resources. Individuals experienced being out of work and at home and determined that they could create new firms from home.
The Biden administration claims that its various public policies have leveraged the “natural” rebound.
Despite doomsayer predictions for the last 20 years, the USA remains the world’s largest economy. China’s population, productivity, property, politics, energy, trade, innovation and middle-income transition challenges have undercut past predictions of its inevitable world economic leadership.
One way to get a tangible sense of the USA’s economic size and dynamism is to compare individual states with other countries. Most of us have read articles highlighting the size of California, Texas, New York, Florida or Illinois as standalone economies. They would currently rank globally as economies numbered 9, 14, 16, 25 and 30, lining up with France, Spain, Saudia Arabia, Vietnam and Argentina in the pecking order. Their men’s soccer teams are ranked 2, 8, 53, 115 and 1 in the world. The US soccer team is ranked 11th and after its recent 5-1 pasting from 12th ranked Colombia it is sure to fall several places.
The real economic strength of the US is shown by the next 27 states. Collectively their GDP is as large as India. These 27 states match up one by one with the next 36 states in the global rankings. The 27 matched countries are each proud nations. There are surprises throughout this listing. UAE 33rd largest country? Romania 34th largest? Morocco 56th largest? Qatar 60th largest? Dominican Republic 62nd largest? New Zealand 63rd largest?
Even bigger surprises arise from the pairing of US states to their global equivalents. Raise your hand if you predicted that these US states are the economic equals of their global nation partners: Georgia and Switzerland, Massachusetts and Sweden, Virginia and Ireland, Maryland and Ukraine, Arizona and Portugal, Indiana and Denmark, Minnesota and Norway, Missouri and Greece, New Jersey and Singapore, Alabama and New Zealand.
The remaining 18 US states are not so large. Their combined GDP is about the same as our neighbor Canada, which ranks 15th overall by GDP, about the same size as Spain or Texas.
On the other hand, the US soccer team was ranked 11th globally. Three of the top 5 matching countries of Argentina, France and Spain deliver 1st, 2nd and 8th FIFA ratings. The middle 27 states matching nations provide another 8 world-class soccer teams in Belgium (3), Portugal (6), Morocco (13), Switzerland (19), Denmark (21), Ukraine (22), Austria (25) and Sweden (27).
The US is an economic colossus that continues to grow faster than the rest of the “developed countries” and maintains its global economic lead. We don’t normally think of Tennessee, Colorado, Michigan, Arizona, Indiana, Minnesota, Maryland and Missouri as global economic powerhouses, but they would EACH rank in the top 55 countries of the world as standalone economies.
Of 10 largest economies in the world, the US has the 3rd highest GDP growth rate at 3.0%. Less developed China (5%) and India (8%) lead the way. The median growth rate is 1.2%. The UK and Germany have negative annual growth rates (recession)! The US has the second lowest unemployment rate at 3.8%, only bettered by Japan at 2.6%. The median is between China at 5.2% and Canada at 6.1%. France and Italy record 7.5% while Brazil and India trail at 8%.
Despite its high wages, high standard of living and highly valued currency, real dollar US exports exceed the pre-pandemic level.
Real dollar imports have returned to their growth trend level, allowing US consumers to take advantage of the differentiated global economy’s strengths.
The misery index, the sum of the inflation and unemployment rates, is down to 7% and trending lower, materially below the 8% average of this century.
US inflation reached 8-9% in 2022 and has fallen to 3%. The “stickiness” is half caused by the lag in housing and rental prices in the index and half due to the continued high 6% federal government budget deficit as a percent of GDP.
There is nominal inflation or actual deflation in most sectors of the US economy today!!!!
On average, the US economy has been adding 2 million new jobs per year for 14 years. 28 million jobs. This is an amazing result.
During the same period, 12 million more people have retired.
The unemployment rate is at a 50-year low. When I was studying economics in 1974-78, there was a big debate about 5% becoming the lowest possible “structural” unemployment rate possible without escalating inflation. 1997-2007 established that a 4.5% to 5.0% unemployment rate was possible. We raced back up to 9% during the Great Recession. The 35-year average was 6.5%. We experienced 3 years of sub-4% in 2017-19 as economists claimed that this was simply impossible. Unemployment rates are still below 4%.
The Black unemployment rate has been chopped in half, from 11% to 5.5%.
The demand for labor remains high. Job openings peaked at 7.5 million before the pandemic. Job openings remain 20% higher at 9 million 5 years later.
The core labor force participation rate has rebounded from the pandemic reaching a level last seen in 2008.
10% fewer black men participated in the labor force between 1973 and 2013. Participation is now solidly increasing.
Real wages stagnated from 2000-14. They have increased by 10% since then.
Real GDP per capita continues to grow.
If you’re a homeowner, the recent one-third increase in home values is a windfall. If you’re a prospective buyer, housing is much less affordable.
US stock market values are up 50% in 5 years.
Coincidentally (?), corporate profits are up 50% in 5 years.
New business creation increased after the pandemic surpassing the pre-pandemic level and exceeding the pre-Great Recession level. Start-ups typically account for all job creation and ensure competition in product and service markets.
Overall productivity growth in the last 5 years has been the same as in 1973-1990 and 2007-19. In recent quarters productivity has begun to increase at a higher rate and many commentators believe that AI will drive productivity at a higher rate for the next 20 years.
The US has achieved energy independence, doubling its production of natural gas in 20 years.
Renewable energy accounts for 22% of US energy generation.
US manufacturing employment has increased by 15% since the Great Recession. It is higher than before the pandemic despite the increase in real median wages and the increase in the value of the US dollar.
Net farm income has doubled since before the pandemic.
We have one-third more voluntary retirees in 2024 versus 2014.
Those retirees are receiving significantly higher incomes.
Retirement assets have increased by 50% in the last 10 years.
US citizens pay very low taxes compared with their developed nation peers.
Summary
The US economy recovered from the uncertain pandemic period faster than other countries due to the combination of very loose fiscal and monetary policy. The fiscal policy boost was bipartisan. The monetary policy boost was nonpartisan. As the strength of the US recovery became apparent by the end of 2021, both Congress and the Federal Reserve Board should have reduced their stimulus levels. The FRB adapted slowly and increased rates. Congress and President Biden have not adapted.
The US economy is experiencing an extra year of excess inflation due to these actions.
It is important to look at the long-run trends and many indicators of economic health. Monetary policy in an independent Fed is effective. Fiscal policy is ineffective. Inflation is higher than ideal.
Let’s list the positive economic indicators. GDP growth, US dollar value, stock market value, exports, employment, retirees and incomes, unemployment, job openings, labor force participation, home values, corporate profits, startups, productivity, energy independence, green energy, manufacturing employment, farm incomes, income equality, poverty, generational progress, and tax burden.
The US economy continues to deliver very positive outcomes for our country. President Biden could do better on reducing the federal budget deficit by increasing taxes or reducing expenditures. Overall, his policies have allowed the economy to continue to deliver benefits.
Last July, I predicted that inflation would be “near 2% by the middle of 2024”. That is not going to happen. Let’s look at the components to assess the last year and the likely future.
Year over year inflation rate peaked at 8.6% in 2nd quarter of 2022. It was more than cut in half at 4.0% a year later in the 2nd quarter of 2023. The last 2 quarters have been 3.25%. The “easy work” is complete. The “hard work” remains.
More volatile Food and Energy prices do not explain the continuing 3%+ inflation rate.
We have enjoyed energy price deflation for 3 quarters.
Food consumed at home prices have been nearly flat for the last 2 quarters after the 12-13% inflation during 2022.
The price of food consumed away from home continues to rise at 4-5% annually. A tight labor market has increased staffing costs for restaurants. High food input costs taught them to better manage their menu prices. Many restaurants went out of business during the pandemic. Restaurants, large and small, lost money during the pandemic and are fighting hard to recover these losses. Following the lean pandemic years consumers have largely returned to their habits of eating out. This is a business sector where high aggregate demand driven by government deficit spending is creating inflation. It is not the “wage-price spiral” of the 1970’s in a manufacturing intensive economy but it is a similar situation in our retail-intensive economy.
We have enjoyed deflation in durable goods prices for 5 quarters as US and global manufacturers realigned their supply chains with more predictable demand patterns.
Nondurable goods inflation has been below the 2% benchmark for 4 quarters.
The broadly defined “services” sector at 5-6% inflation remains a stubborn problem area. It contains a number of sub-sectors with very different market conditions.
Medical care inflation above the overall inflation rate has been an issue for decades, but it has averaged just 1% for the last 5 quarters.
Transportation services prices have increased by 10% annually. This includes public and private transportation. Public sector transportation is attempting to recover from the pandemic driven decline in ridership. Private rail and truck carriers were disrupted by the pandemic as goods movements plummeted. The prospect of driverless trucks kept freight firms and drivers from returning. Transportation drivers are on the low end of wages. The overall increase in real wages at the low end of the labor market has made these physically demanding, away from home, jobs less attractive. This inflation is part long-term structural adjustment and part short-term recovery of freight flows in the economy. Transportation services is 5% of the CPI, material, but not large enough to drive the total.
The education and communications pair of service sectors has low inflation. Education is higher. Communications is lower.
Housing is one-third of the total CPI. It is a very technical, wonky area. It combines a blend of actual rental charges and the estimated rental value of owned homes. Increases in home prices are smoothed out and their impact on the CPI tends to lag by 2-8 quarters. Housing inflation has fallen from 8% to 5%.
Housing sales prices have declined for 4 quarters. This will increasingly blend into the housing CPI, soon producing deflation rather than 4-5% inflation.
Market rent inflation remains in the 3-3.5% range based on the cumulative lack of US housing construction since the Great Recession of 2007-9. Combined with falling housing sales prices the combined housing CPI should decline to 2% by the fourth quarter of 2024.
Dreaded “cost-push” inflation is not a major factor for the US economy. A tight labor market has delivered 1% annual real wage increases for the last 5 quarters. This is a factor in inflation but not a driver or barrier to reaching 2% overall.
2024 looks like 2023, a very high budget deficit for a full-employment economy. In classical Keynesian economic terms, the aggregate demand pressure indicates continued 3% inflation.
An overheated economy typically shows a strong increase in imports as demand reaches out globally. This is not the situation in the US this year.
The money supply has a long-term impact on the economy, prices and inflation. The Federal Reserve Bank has been shrinking the “money supply” by 10% annually.
Commodities are the most volatile element of the global economy. Prices jumped by 20% with the unanticipated quick recovery from the pandemic. The last year has delivered commodities price deflation.
Changes in relative market power can drive inflation. Corporations increased profits by 50% in the first year of the pandemic. Profits have been relatively flat since then.
Summary
A dozen sectors point towards 2% inflation by year end. Energy, food at home, durable goods, nondurable goods, medical care, education/communication, housing prices, real wages, imports, money supply, commodity prices and profits.
Four sectors indicate concerns. Food away from home continues to drive high inflation.
Public and private transportation services have not yet reached equilibrium. This pressure may continue for another 4 quarters but should not be a long-term inflation driver.
The “Great Recession” destroyed the construction industry. It has slowly recovered. Total construction has increased, perhaps not enough to bring housing supply into balance with demand 15 years later. Rental inflation at 3% is likely to continue.
The federal budget deficit is the greatest concern. 6% of GDP is a huge deficit.
Net, net, I predict that the Urban Consumer CPI increase in the fourth quarter of 2024 versus the fourth quarter of 2023 will be 2.25%. The federal government spending deficit will directly and indirectly boost inflation.
Good News 